Upgrade ResMed Fair Value Estimate Following Deep Dive on the U.S. Market Growth

Narrow-moat ResMed posted a strong third-quarter result which was boosted by USD 35 million in ventilator sales to treat coronavirus patients in China and Europe, but did not yet capture the effects of the significant drop-off in sleep apnea diagnoses. Despite expecting additional ventilator sales in the next quarter, we are anticipating overall revenue to be down as sleep apnea devices are currently trading down double digits. Overall revenue is roughly split 50% devices, 40% masks and accessories, and 10% software services. However, following a deep dive on market penetration in the U.S. and the success of the ResMed resupply model, we increase our long-term growth rates for masks and accessories and consequently our fair value estimate to USD 134 (AUD 20) from USD 114 (AUD 17).